New Jersey Bankruptcy Resources

Declaring bankruptcy is a decision that affects not only your finances but also your credit score. While your score may decrease after financial hardship, there are practical and real ways to improve it and get back on a better financial path.

Before you start taking steps to fix your credit score, it is important to know what the score is and why it's so important to your financial future.

When you apply for any type of credit -- credit cards, car loans, mortgage or rental agreements, student loans -- the financial agency first looks at your credit history to determine if it should lend to you. Many lenders use FICO scores as part of those decisions. If your FICO scores are in the mid-700s or above, that generally means you have good credit and it shouldn't be difficult for you to get approved, provided you meet lender's other requirements.

How do I improve my credit score?It is important that you understand what happens when you file a bankruptcy. A bankruptcy can remain on your credit report for up to 10 years, and there is a good chance your FICO score will be low until you have started rebuilding your credit. You can take the following seven steps to start raising your scores.

1. Review your credit reportThe first step is knowing where you are and where you need to go. The first thing you should do is obtain a copy of your credit reports and make sure there are no errors or inconsistencies. You can try Credit.com's Free Credit Report Card for an overview of your credit standing and an explanation of how it's broken down, and you can request one free copy of your credit report per year from Equifax, Experian and TransUnion at AnnualCreditReport.com.

2. Pay bills on timeYour payment history makes up 35% of your credit score. One of the easiest ways to improve your score is to make sure you pay bills on time.

Tip: Set up reminders on your calendar to pay bills every month by the due date. Many banks and creditors offer services that allow you to set up your payments electronically so you don't forget.

3. Apply for credit . . . cautiouslyIf you didn't keep a major credit card account open during your bankruptcy, it's a good idea to get one after your bankruptcy has been discharged. You may have to start with a secured card, which requires that you place a security deposit with the issuer. Once you get the card, it's perfectly fine to pay the bill off in full each month. You don't have to carry balances on your credit cards to build good credit.

4. Add a loan down the roadOnce you have gone a year or two post-bankruptcy, consider getting a car loan or line of credit. If it's a car loan, buy a vehicle that is affordable and that you can pay off successfully. You may receive a higher interest rate to start. Shop around for the best rate, and keep in mind that once you have raised your credit scores, your next interest rate on a loan will likely be lower.

5. Beware of credit repair servicesYou may receive offers from credit repair services promising to help repair your credit. Make sure you thoroughly investigate these services before you use them. Their fees can be high. There are many ways you personally can rebuild your own financial future at no cost. In this case, DIY is often best.

6. Know your limitsAgain, once you begin re-establishing credit, it is crucial to know the limits on your credit cards and to keep your balances well below them. You may have a very low limit due to your credit history. That's OK. Use your cards sparingly and continue paying the bill on time.

7. Do not close accountsYou may think you're doing the right thing by closing lines of credit and swearing off all credit cards. This action does far more damage to your credit than you might think. Closing accounts reduces the amount of credit you have available to you. This leads to lower credit scores. It's best to keep the credit lines open. If you're tempted to spend, cut up the cards.

The most important lesson to learn is to be patient. The road to bankruptcy did not happen overnight. And neither will the road to improving your credit. By following the guidelines above, you can move toward a better financial future and improved credit score.